Australia – Transparency In Investment Arbitration.

 

18 April, 2018

 

 

What you need to know

 

Investor-state dispute settlement has been a controversial subject in Australia, with the Australian Government previously having a policy of banning the inclusion of investor state dispute settlement provisions in investment treaties.

 

As part of a global trend in favour of transparency in investor-state arbitration, Australia has signed the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration. 

 

Increased transparency in investor-state arbitration should serve to increase public confidence in international trade and in investor state dispute settlement as a means of safeguarding it.

 

On 18 July 2017, Australia signed the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (New York, 2014) that is otherwise known as the Mauritius Convention on Transparency (Mauritius Convention).  

The Mauritius Convention entered into force on 18 October 2017 and extends the application of United Nations Commission on International Trade Law (UNCITRAL) Transparency Rules (Transparency Rules) to all investment treaty arbitrations concluded before 1 April 2014. The Transparency Rules otherwise only applied to investor-state arbitrations initiated under the UNCITRAL Arbitration Rules pursuant to an investment treaty concluded on or after 1 April 2014. 

Below we discuss the operation of the Mauritius Convention and analyse the increasing trend in favour of transparency in investor-state arbitration.

 

Background 

 

To encourage investment between the contracting states, an investment treaty will commonly confer certain minimum levels of protection on investors from one state with respect to their investments in the other. These protections are typically enforceable by the investor directly against the state party. This is called investor state dispute settlement. For the most part, investment treaties grant to an investor of one state the right to bring claims directly against the other by investor-state arbitration. The resulting award can then be enforced globally.

 

Claims determined by investor-state arbitration are ordinarily subject to the UNCITRAL Arbitration Rules or conducted under the auspices of the world-bank administered International Centre for the Settlement of Investment Disputes (ICSID). It was historically the case that most investor-state arbitrations were confidential, although not to the same extent as commercial arbitrations (for example, the World Bank maintains a database of all ICSID awards).

 

On 1 April 2014, the United Nations Commission on International Trade Law (UNCITRAL) Transparency Rules (Transparency Rules) came into effect with the aim of increasing transparency and accessibility to the public of investor-state arbitrations. The Transparency Rules, amongst other things: 

 

• require prompt and mandatory disclosure of new arbitrations;
• establish a regime for the disclosure of arbitration documents;
• allow for third parties to make submissions on matters relevant to the dispute; and 
• create a default rule that all hearings are public.

 

However, when the Transparency Rules entered into force they only applied to investor-state arbitrations initiated under the UNCITRAL Arbitration Rules pursuant to an investment treaty concluded on or after 1 April 2014. This meant that the Transparency Rules did not apply to: 

 

• investment treaties concluded before 1 April 2014; and
• arbitrations not initiated under UNCITRAL Arbitration Rules (unless otherwise agreed between the parties).

 

Mauritius Convention

 

The Mauritius Convention extends the application of Transparency Rules to all arbitrations arising out of investment treaties concluded before 1 April 2014. This includes arbitrations initiated under the rules of other organisations such as ICSID and the International Chamber of Commerce, etc.

 

As such, it allows for the Transparency Rules to apply to almost 3,000 investment treaties concluded before that date.

 

The Mauritius Convention has been signed by 22 countries including the United States, the UK, Germany, France and Canada. Notable exceptions include Singapore and Hong Kong. 

 

While just three countries (Canada, Mauritius and Switzerland) have ratified the Mauritius Convention and only 22 have signed it, a study by UNCITRAL concerning the transparency of investor-state arbitrations in the Asia-Pacific region concluded that the Mauritius Convention has nevertheless resulted in increasing harmonisation and the convergence of transparency provisions in investment treaties:

 

"The survey demonstrates that the [Mauritius Convention] and the [Transparency Rules] have played a pivotal role in the dissemination of transparency provisions in [investment treaties] in the region… the real impact of the [Mauritius Convention] and the [Transparency Rules] is noteworthy in the field of [investment treaty] negotiation and conclusion in the Asia-Pacific region.".

 

Australia has not yet ratified the Mauritius Convention. The Joint Standing Committee on Treaties will consider whether it should be ratified. On 22 March 2017, though, the Commonwealth Government introduced the Civil Law and Justice Legislation Amendment Bill 2017 (Omnibus Bill).

 

If passed, the Omnibus Bill will amend the International Arbitration Act 1974 (Cth) (Act) to insert definitions for the Mauritius Convention and the Transparency Rules, and to insert a new section 22(3) which provides that the existing sections 23C – 23G (provisions relating to the disclosure of confidential information) will not apply to any arbitral proceedings to which the Transparency Rules apply. The amendments would facilitate the conduct of investor-state arbitrations in accordance with the Transparency Rules and ensure that there would be no discrepancy between them and the Act. The Omnibus Bill is currently before the Senate.

 

Analysis

 

The Mauritius Convention is the high water mark of an increasing trend in favour of transparency in investor-state arbitration. It has entered into force at a time when international trade and investor state dispute settlement have each become highly politicised both in Australia and internationally.

 

Moreover, in Australia, investor-state dispute settlement has been a controversial subject following the high-profile investment arbitration commenced by Philip Morris arising from the enactment of what was commonly known as the "Tobacco Plain Packaging Legislation": Phillip Morris Asia Limited v Commonwealth of Australia, UNCITRAL, PCA Case No 2012-12. A negative perception of investor state dispute settlement developed upon commencement of the arbitration. The tribunal ultimately rejected Phillip Morris' claims on jurisdictional grounds. Nevertheless, the then-Labor Government adopted a policy of banning the inclusion of investor state dispute settlement provisions in future investment treaties because it considered them to be an affront to sovereignty.

 

The current Liberal Government considers such provisions on a case-by-case basis. 

 

The Mauritius Convention and the Transparency Rules recognise the legitimate public interest in the conduct of investor-state arbitrations. This public interest derives not only from the financial consequences that might ultimately flow from an arbitral award, but also from the subject matter of investment disputes themselves (that may involve matters of public policy). As was recognised by the tribunal in Phillip Morris:

 

"[W]hile confidentiality is a traditional and an essential feature of commercial arbitration in many jurisdictions, in investment arbitration the practice is much more diversified. This practice recognizes that investment disputes involve a public interest component which suggests that information about the dispute be made available not only to parties and the tribunal but also to civil society at large. This recognition has led to a growing practice – under the various rules chosen for investment arbitration – to provide for greater transparency.".

 

The controversy around investor-state arbitration is arguably one of the factors that has seen public confidence in international trade (and the investment treaties that facilitate it) diminished in recent years.

 

Increased transparency in investor-state arbitration will allow for increased public participation and oversight of the process. This should serve to increase public confidence in investor-state dispute settlement as a means of safeguarding international trade. That in turn may ultimately facilitate further investment treaty negotiations and so enhance the prospects of international trade.

 

Importantly, the trend towards greater transparency looks set to continue.

 

Our International Arbitration Group will keep you updated on developments concerning the Mauritius Convention.

For further information, please contact:

 

Adam Firth, Partner, Ashurst

adam.firth@ashurst.com